Topic 6 - Systems and Controls Flashcards
Purpose of Internal Controls
Are policies and procedures by directors and management to:
- Safeguard assets
- Regulatory complainance
- Prevent and detect fraud
- Accuracy and completeness of records
System notes:
Narrative notes
Advantages
-Simple to record.
-Easy to understand.
Disadvantages
-May be cumbersome and inefficient.
-Difficult to identify missing internal controls.
Questionnaires Advantages -Quick to prepare. -Cost effective. -All controls are considered. -Simple to complete.
Disadvantages
- Company may overstate the level of the controls present.
-May be misunderstood.
Flowcharts Advantages -Can be prepared quickly. -Easily followed and understood. -Eliminates the need for narrative notes.
Disadvantages
- Difficult to show a graphic illustration.
- Narrative notes tend to be better.
- Amendments are difficult.
5 Internal control components
C R I M E
o Control activities – policies and procedures to ensure management directives are carried out.
o Risk assessment procedures – how management identifies business risks.
o Information systems – anything that gets documented.
o Monitoring – assesses the effectiveness of internal control performance.
o Environment – attitudes, awareness and actions of management.
Control activities:
A P I P S
o Authorisation – approved by an appropriate person.
o Performance review – senior reviews work.
o Information processing – documents/ how data is captured.
o Physical controls – locks (restriction of access) / passwords.
o Segregation of duties – two or more people carrying out the system.
Direct and Indirect controls
Direct = Addresses the risk of material misstatement. E.g bank recs review
Indirect = System that supports the control. e.g bookkeeping software
Internal control Questionnaire (ICQ)
Wording…
Does…..
e.g - Does a supervisor authorise all weekly timesheets
Internal Control Evaluation Questionnaire (ICEQ)
Wording.. How does…
E.g - How does the company ensure that only hours worked are recorded on timesheets.
Sales/Revenue Controls
-Order Received - Valid, creditworthy customer.
- GDN - Promptly to correct customer
- Invoicing - correct
- Recording - valid, correct value and time
- Cash Received - allocated against correct invoice.
o To ensure sales are made to valid customers.
o To ensure sales are recorded accurately.
o To ensure that all sales are recorded.
o To ensure cash is collected in a timely manner.
Purchase System
Order Placed - valid supplier,
GRN - accept correct order
Invoice received - correct invoice
Recording - correct time and amount
Cash Payments - only for good received.
o To ensure orders are made for a valid purchase.
o To ensure purchases are cost effective.
o To ensure purchases are recorded accurately.
o To ensure all purchases are recorded.
o To ensure cash is paid and allocated on a timely manner.
Payroll System
-Timesheets - paid for work done
-Payroll calc - valid employee, correct gross, net and tax
- Data Amendments - up to date - restrict to reduce fraud
- Recording - accurate
- Payments - to employees and tax authorities.o To ensure the right people are paid.
o To ensure the right wage rate is paid.
o To ensure only paid for the hours worked.
o To ensure taxes are calculated correctly.
Inventory System
GDN or GRN
Receipt record or GDN
Movements posted in inventory ledger
Bank and Cash system
Request for payment
Payment authorisation
Payment made or received
Payment and receipts recorded.
Bank recs
o To ensure cash is safeguarded.
o To ensure minimal cash is held on site.
o To ensure payments for authorised business expenditure only.
